How to Use Agile Methodology in the Vendor Selection Process

A business must have quick reflexes to respond to changing conditions.

The agile methodology adds another layer of complexity to the process of choosing the right vendor for a supplier relationship. This methodology is based on the need for companies to respond quickly to a changing business environment and fluctuating consumer needs. To select a vendor using the agile methodology, a business can source a vendor from anywhere in the world. This involves taking into consideration factors such as differences in manufacturing practices worldwide. And the vendor may not be suitable as the environment changes, if your criteria for selecting a vendor vary. To ensure agility, a business enterprise can use the analytical hierarchy process -- or AHP -- approach as a technique for vendor selection.

Things You'll Need

• List of vendors, selection factors, mathematical algorithm

Instructions

1. Make a list of the various vendors you are considering.

2. Determine the key factors you will use in choosing a supplier. For example, one aspect is how well the vendor is managed. This involves whether the vendor has a management system that is responsive to change and what its organizational practices are. Another decision-making input may be its technology and systems, and how current they are.

3. Compare each deciding factor with the others one-by-one, assigning weights to each one -- on a scale of one to 10 -- based on its important to your vendor selection decision. For example, compare the vendor’s management to its technology. If you place more emphasis on a vendor who has technological strengths, you will assign a higher weight to this criterion than to the management system.

4. Use a mathematical algorithm designed for this purpose to come up with a number that assigns a weight to each decision factor, based on your priorities.

5. Rank the vendors, using the weights for each decision factor and your estimate of vendor performance on each factor, and choose the vendor that ranks highest and therefore best meets your criteria.

Tips & Warnings

• The Analytical Hierarchy Process does not take into account subjective factors such as a business’ relationship history with each vendor. If such factors are important to your decision-making process, this sort of mathematical computation may not be the best approach.

• When vendors are located worldwide, transportation costs can be a significant factor, and you should assign adequate importance to this relative to other decision factors.

References

• State University of New York at Buffalo; Optimal Partner Selection for Virtual Enterprises in Agile Manufacturing; Pramod Gupta, Rakesh Nagi
• “Agile Manufacturing: The 21st Century Competitive Strategy”; A. Gunasekaran